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TMI Blog2012 (7) TMI 795X X X X Extracts X X X X X X X X Extracts X X X X ..... ch of technical knowledge is required in it.SEL is not required to employ any skilled technical personnel to discharge its obligation under the agreement and, therefore, we hold that the assessee is not discharging any technical services - it is seen that SEL is acting on behalf of the assessee as its agent and there is no independent application of thought process in any of the activities to be carried out by SEL no managerial services being rendered by SEL to the assessee - above payments do not fall within the ambit of fee for technical services and, therefore, the provision of sec. 195(1) is also not attracted - in favour of assessee. - IT Appeal NOS. 19 & 23 (BANG.) OF 2010 - - - Dated:- 29-6-2012 - SMT. P. MADHAVI DEVI, JASON P. BOAZ, JJ. ORDER Smt. P. Madhavi Devi, Judicial Member These appeals are filed by the assessee. The appeals are directed against the order of the Commissioner of Income-tax (Appeals) - IV at Bangalore dated 15.10.2009. The appeals arise out of the order passed u/s 201(1) and 201(1A) of the Income-tax Act, 1961. 2. In both the appeals, the assessee is aggrieved by the order of the CIT(A) in confirming the order passed by the AO u/s 2 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... considered in the light of a treaty between India and Hongkong. He held that no treaty existed between India and Hongkong and, therefore, taxability of the transaction needs to be looked at under the provisions of the Domestic Tax Laws i.e in view of the explanation 2 to sec. 9(1)(vii) of the Income-tax Act. 5. He therefore proceeded to consider as to whether the services rendered by M/s SEL are in the nature of technical or consultancy or managerial, as defined in the section. He observed that - ( a ) the duties of the service provider are not clearly spelt out in the agreement between the parties, but as per the assessee's submissions and material available on record, it is understood that the service provider has to inspect the fabrics to be imported before the shipment. He held that the inspection of fabrics is not a simple job and requires the technical knowledge and technical skills in the filed of textiles and that it also requires good experience to inspect and analyze the material and to detect any defects therein. He, therefore held that the services rendered by the non-resident are in the nature of technical services. ( b ) Thereafter, he observed that the serv ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... firm the order of the AO about the nature of services being technical, managerial and consultancy services. 9. Aggrieved by the confirmation of the order of the AO by the CIT(A), the assessee is in second appeal before us. 10. The learned counsel for the assessee has drawn our attention to various facets of the case and has tried to demonstrate as to how the nature of services rendered by M/s SEL to the assessee company are not technical, managerial or consultancy as mentioned under explanation to sec. 9(i)(vii) of the Income-tax Act. He submitted that M/s SEL is only an agent appointed by the assessee to oversee the quality and quantity of the shipment and also that the shipment reaches the assessee company on time. He submitted that it was the assessee in joint consultancy with its buyers, who decides on the type and quality of the material to be imported and also the prices at which the said material is to be imported and the samples are then sent to M/s SEL only to compare and see that the material being shipped conforms to the quality and the quantity ordered by the assessee. He submitted that for this purpose, there is no technical expertise required nor are any manag ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... for services rendered outside India becomes allowable expenditure. On being apprised of this position, the comptroller and Auditor General have agreed to drop the objection referred to above." 11. He also filed before us a copy of table containing amendments to sec. 9(1)(vii) commencing with financial year 2006-07 i.e assessment year 2007-08. By this table, the assessee has drawn our attention to the provision as it stood prior to amendment vide Finance Act of 2007 and the amendment carried out by Finance Act 2007 and also amendment carried out vide Finance Act 2010. He submitted that the period relevant to the transaction is Apr, 2006 to Mar, 2007 and, therefore, the provision of law as it stood prior to the amendment of Finance Act 2007 is applicable. He submitted that the assessee cannot be expected to imagine and foresee the amendment that would be made to the Act to set at naught the effect of the judgments which would be pronounced by the various Courts. He submitted that it would amount to grave injustice to say that the assessee will have to deduct tax at source at the time of making the payment by foreseeing such amendments. According to him, the assessee cannot be as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... es that M/s SEL shall be responsible for the shipment of raw material to the assessee from its importers within the stipulated time and as per the specific quality and quantity. The learned counsel for the assessee has elaborately pointed out that it is the assessee, in the consultation with its exporters, which identifies the manufacturer and the quality and the price of the material to be imported. Therefore, SEL nowhere is involved in the above identification of the exporter or in selecting the material and negotiating the price. In such circumstances, it cannot be said that SEL is rendering any of the consultancy services. Further, it also seen that the quality of material is already determined by the assessee and the SEL is only to make a physical inspection of the material to see if it resembles the quality specified by the assessee. It only has to compare the material with the samples provided by the assessee and for this activity, not much of technical knowledge is required. The elementary knowledge of the type of material and fair sense of identifying the correctness of the quality is sufficient. Therefore in our opinion, SEL is not required to employ any skilled technical ..... X X X X Extracts X X X X X X X X Extracts X X X X
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